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The Corporation is the Client, Not the Board

Started by ChrisA13 • 16 replies • 1712 views

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ChrisA13 (New Jersey)
Posts: 120
Posted:
On other postings, it seems as if we have lost sight of the forest through the trees. It is important that those who are owners of COAs/HOAs (OWNERS) realize that their interests via the corporation (THEIR CORPORATION) are represented by the legal counsel hired/retained to represent the client -- the corporation.

Lawyers are not retained with COA money to represent Board members. Board members are represented by SEPARATE counsel, normally retained in matters in which the D&O insurance kicks in and the SEPARATE law firm comes in to represent their interest per that policy. The retained lawyer of the corporation is not retained to protect the board members. They are retained to protect the corporation -- their ONE TRUE CLIENT. That is who they represent. Or SHOULD represent with due diligence. Always. Totally. Completely.

Thus, if the board is acting in a manner that is harmful to the corporation, the law firm should not permit these actions to happen -- even if the board is the one who signs their checks. If something is taking place that is adverse to the client, the corporation, the attorney should take action or quit. He should not sit by and let others do the corporation harm. That is a failure in the counsel's duty to his client, YOUR CORPORATION.

The corporation is the client. You pay counsel through your fees for the client (YOUR CORPORATION) to be represented and its interests protected. You pay "fees" to keep a counsel at the ready to make sure that no party is acting in a manner that is ADVERSE or harmful to the corporation.

Just because "a corporation" cannot speak, it does have standing and it does have interests that need to be protected -- sometimes even from those claiming to be the "voice" of the corporation.

The client is the corporation. And when one is not acting on its behalf, they are failing in their duty... whether a board member, management company OR LAWYER.
TimB4 (Tennessee)
Posts: 21,062
Posted:
" The Corporation is the Client, Not the Board"

However, the Board makes the decisions and exercises the power and authority of the Corporation. Therefore, as much as someone would like to, you can't simply separate the Board and the Corporation.

I can tell from your postings that you apparently do consider the Board and the Corporation as two separate entities. I also know that you have tried proving this through the courts by bringing action, not only the Association but against individuals serving as Directors for what they did as a Director. In time, I suppose the courts will weigh in with their ruling on the issue.

The larger thing to remember is that the Assocaitions Attorney indeed works for the Association at the direction of the Board. That Attorney does not represent the members.

ChrisA13 (New Jersey)
Posts: 120
Posted:
Quote:
Posted By TimB4 on 02/18/2014 2:47 PM
" The Corporation is the Client, Not the Board"

I also know that you have tried proving this through the courts by bringing action, not only the Association but against individuals serving as Directors for what they did as a Director.

The larger thing to remember is that the Assocaitions Attorney indeed works for the Association at the direction of the Board. That Attorney does not represent the members.


We agree that the attorney works for the association. That was my point.

Your assessment of the facts is wrong. When a member is sued (despite being on the board) for acts not committed while a trustee and the board does not indemnify them for their acts because they weren't acting under the umbrella of a "trustee," they are -- in fact -- as individually liable for their conduct as any other owner. They are not protected "in life" from anything they do simply because they sit on a board.

Without getting into the details, if a board member decides to climb on a balcony and spy into the windows of women's home -- are they still a board member or a member who is responsible for his own actions? I definitely argue the latter since their action is not one in which a trustee is permitted to perform.

You don't get a special "shield" simply because you volunteered to be a on a board.

You are only protected as a board member when acting as a board member.

Yet we are in agreement on the fact that the association is the client. Not the board.
TimB4 (Tennessee)
Posts: 21,062
Posted:
Quote:
Posted By ChrisA13 on 02/18/2014 2:53 PM

Your assessment of the facts is wrong.

Well, what is common knowledge to you is not common knowledge to me or others on the Board. I can only make my assessment on what has been provided.

Again, I defer to your knowledge of the issue.
RichardP13 (California)
Posts: 1,767
Posted:
Chris

First, let me say "I hate attorneys". That being said, I have gotten a few nasty letters from the association's attorney and they always start out with, "As you know, this firm represents the Association". According to my CCRs, it states, The management and complete control of the Association's affairs and the Project itself will be the direct responsibility of the Board of Directors, which is to consists of Members of the Association who will be elected by the total membership of the Association.

While at times difficult, as Members, IF we don't like the direction our elected officials are taking us, we do have the power to change the direction.
ChrisA13 (New Jersey)
Posts: 120
Posted:
Quote:
Posted By RichardP13 on 02/18/2014 2:57 PM
Chris

First, let me say "I hate attorneys". That being said, I have gotten a few nasty letters from the association's attorney and they always start out with, "As you know, this firm represents the Association". According to my CCRs, it states, The management and complete control of the Association's affairs and the Project itself will be the direct responsibility of the Board of Directors, which is to consists of Members of the Association who will be elected by the total membership of the Association.

While at times difficult, as Members, IF we don't like the direction our elected officials are taking us, we do have the power to change the direction.

I hear you, Richard. But like I said, if an attorney thinks the direction the board is taking is adverse to the contract/laws, it has a duty to either stop it or (if it cannot) drop the client. It cannot simply say, "Well, that's what these volunteers wanted... so groovy." The volunteers have power, but it is not without limitations and it must always be in a manner that is consistent to that which promotes and protects the association.

That's common sense to me. But clearly not to the lawyers who, if you can't tell, I think are more harmful than beneficial. In other words, garbage. One caveat, only 99.9%. I do know one or two very decent lawyers. So there are always exceptions to the rule: .01%.
RichardP13 (California)
Posts: 1,767
Posted:
Chris

It's all about money. Our court system is not about right or wrong, it's about win or lose. We have known killers defended by attorneys, it's their legal right.
MelissaP1 (Alabama)
Posts: 13,836
Posted:
A HOA is ONLY funded by it's members FOR it's members. You do the math when it comes to who pays for the legal defense of the HOA/corporation. You being a "stockholder" in said corporation.

I still can NOT understand how one does NOT get that concept that when you sue your HOA you sue yourself and your neighbors. It is NOT some other entity. There is no "they or them" in a HOA. It is YOU and your neighbors.

What is so hard to understand? You win your suit you risk the HOA losing their insurance or increasing the cost of it. You lose the HOA pays the legal costs and it effects loan approval or rates. Either way you increase the expenses of your HOA and forces everyone to pay more.

You think people are trying to talk you out of suing. That is soo short sighted. We are trying to make sure it is understood the ramifications of that choice. It is NOT the board members who have to pay. It is everyone in the HOA. If you do not recognize this or acknowledge it, then you have severe self serving purpose.
Former HOA President
RichardP13 (California)
Posts: 1,767
Posted:
Quote:
Posted By MelissaP1 on 02/18/2014 3:57 PM
A HOA is ONLY funded by it's members FOR it's members. You do the math when it comes to who pays for the legal defense of the HOA/corporation. You being a "stockholder" in said corporation.

I still can NOT understand how one does NOT get that concept that when you sue your HOA you sue yourself and your neighbors. It is NOT some other entity. There is no "they or them" in a HOA. It is YOU and your neighbors.

What is so hard to understand? You win your suit you risk the HOA losing their insurance or increasing the cost of it. You lose the HOA pays the legal costs and it effects loan approval or rates. Either way you increase the expenses of your HOA and forces everyone to pay more.

You think people are trying to talk you out of suing. That is soo short sighted. We are trying to make sure it is understood the ramifications of that choice. It is NOT the board members who have to pay. It is everyone in the HOA. If you do not recognize this or acknowledge it, then you have severe self serving purpose.

Melisaa,

You really need to get off that trip. It works the same way, the other way around, when a HOA goes after a homeowner.
RichardP13 (California)
Posts: 1,767
Posted:
Chris

I couldn't agree more, but that is the society we have created and allowed to exist. Our healthcare is expensive and a main ingredient is litigation. My wife works for the City of LA and we have people suing the City everyday of the week and twice on Sunday. Most of the cases are settled out of court. Why, a good defense attorney knows, if he has a reasonable case, the cost to litigate and comes in a few dollars less. Even if the City could win, they lose.
DavidW5 (North Carolina)
Posts: 565
Posted:
Chris,

The association attorney has no power or authority of any kind to, as you put it, stop the corporation from doing something wrong. The association attorney is an adviser only and his advice is given to the board of the association (corporation). As with any adviser the board has the option to follow or reject the advice of the attorney. If an attorney quit every time a board did not follow his/her advice, there would be a hell of a lot of unemployed attorneys (maybe that wouldn't be such a bad thing?).
TimB4 (Tennessee)
Posts: 21,062
Posted:
Quote:
Posted By DavidW5 on 02/18/2014 5:33 PM
Chris,

The association attorney has no power or authority of any kind to, as you put it, stop the corporation from doing something wrong.

David,

Apparently, it is that way for NJ. Per NJ Rules of Professional Conduct (RPC), specifically RPC 1.13:

If a lawyer for an organization knows that an officer, employee or other person associated with the organization is engaged in action, intends to act or refuses to act in a matter related to the representation that is a violation of a legal obligation to the organization, or a violation of law which reasonably might be imputed to the organization, and is likely to result in substantial injury to the organization, the lawyer shall proceed as is reasonably necessary in the best interest of the organization. In determining how to proceed, the lawyer shall give due consideration to the seriousness of the violation and its consequences, the scope and nature of the lawyer's representation, the responsibility in the organization and the apparent motivation of the person involved, the policies of the organization concerning such matters and any other relevant considerations. Any measures taken shall be designed to minimize disruption of the organization and the risk of revealing information relating to the representation to persons outside the organization. Such measures may include among others:

(1) asking reconsideration of the matter;

(2) advising that a separate legal opinion on the matter be sought for presentation to appropriate authority in the organization; and

(3) referring the matter to higher authority in the organization, including, if warranted by the seriousness of the matter, referral to the highest authority that can act in behalf of the organization as determined by applicable law.

Chris,

Although it is understandable to think that this would apply everywhere, I would caution making statements that leads one to believe it applies in every State. State laws vary. Therefore, what may be a correct statement based on the laws/regs of one State can be an incorrect statement for someone in a different State.

TimB4 (Tennessee)
Posts: 21,062
Posted:
From the VA RPC site:

[1] An organizational client is a legal entity, but it cannot act except through its officers, directors, employees, shareholders and other constituents.

[3] The decisions of constituents of the organization ordinarily must be accepted by the lawyer even if their utility or prudence is doubtful. Decisions concerning policy and operations, including ones entailing serious risk, are not as such in the lawyer's province. However, different considerations arise when the lawyer knows that the organization may be substantially injured by action of a constituent that is in violation of law.
TimB4 (Tennessee)
Posts: 21,062
Posted:
Oops, I clicked on submit before I was finished.

From the VA RPC site:

[1] An organizational client is a legal entity, but it cannot act except through its officers, directors, employees, shareholders and other constituents.

[3] The decisions of constituents of the organization ordinarily must be accepted by the lawyer even if their utility or prudence is doubtful. Decisions concerning policy and operations, including ones entailing serious risk, are not as such in the lawyer's province. However, different considerations arise when the lawyer knows that the organization may be substantially injured by action of a constituent that is in violation of law.

As you can see, per item 3, the attorney needs to follow the directions of the Board unless that direction is in violation of law.

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